Basic math says the whole is equal to the sum of its parts.
So when a client recently asked Jeff Diefenbach, vice president and branch manager at Burns & Wilcox, to compare a multiline Comprehensive General Liability (CGL) policy to products liability insurance, one of its component coverage parts, the request didn’t really add up.
“I’m not sure why anyone would want to buy completed operations (products liability) as a monoline coverage,” says Diefenbach, who manages the firm’s Indianapolis, Chicago, Milwaukee and Detroit offices. “CGL already includes Products Liability. The price difference is minimal — only a few percent higher for the comprehensive CGL.”
What’s more, he says, “the CGL policy is already broad, so buying the separate Products Liability Coverage doesn’t extend the coverage.” With CGL, the insurer is legally obligated to pay damages for both bodily injury and property. Buying just a monoline products liability policy would leave the insured without coverage for premises liability, medical payments, completed operations, and personal injury /advertising liability, features that are part of a standard commercial general liability contract.
So why buy just a products liability policy? It turns out very few businesses do. In fact, says Diefenbach, Burns & Wilcox fields very few requests for monoline policies.
Upon further reflection, however, both Diefenbach and Michael Franzese, vice president and branch manager of the Burns & Wilcox Tampa and Daytona Beach, Fla. offices, concur that there are indeed situations where a separate products liability policy makes better sense than a more comprehensive CGL.
“We sometimes see requests for monoline products liability insurance when a company has gone out of business and wants to keep its products’ coverage in place,” explains Diefenbach. While such an entity no longer has a physical operation or any other liability concerns that require coverage, its products remain in the marketplace or in use, so there is still the potential for liability. Another reason an agent might seek monoline products liability involves a high-hazard product that an insurer doesn’t want to include in a CGL policy. Sometimes it’s a new product that has a potential for large losses but lacks a track record. During the underwriting process, most insurers rely heavily on past experience as a gauge of future risk, so a new product, especially one that’s different from anything else on the market or one similar to a product that has proven problematic, could automatically push an account into a riskier class. In either case, the insurer might decline the account, quote an exorbitant rate or agree to provide CGL Coverage but exclude products liability.
Pharmaceuticals, nutraceuticals/ nutritional supplements, and aircraft parts are some of the products that have an obvious potential for costly and widespread lawsuits, notes Diefenbach.
In situations where a carrier provides CGL but specifically excludes products liability for a hazardous product, it is common for that carrier to seek proof that another insurer is providing Products Liability Coverage. Through the years, court decisions have shown that policy exclusions do not necessarily hold up (early pollution exclusions are a prime example), so having a monoline products liability policy from another carrier makes it less likely that the CGL insurer will be brought into litigation for a product it had no intention of covering, Franzese says.
The Claims-Made Challenge
Most CGL policies are written on an occurrence basis; however until a few years ago, many monoline products policies carried a “claims-made” provision, whereby claims must be filed during the policy period or within a specific time after that period to trigger coverage. Today, however, products policies are routinely written on an occurrence basis, where claims for incidents that occur during the policy term will be paid, even when filed many years after the policy expires, says Franzese. Such products as food, furniture, and clothing are easily covered on an occurrence basis in a CGL policy.
For difficult products with long-tail exposure, though, a carrier sometimes will want to control its exposure by providing only a claims-made policy. When the client is a chemical manufacturer or in another difficult class, or if it is launching a new product that makes underwriters uncomfortable, they may have no option but to accept the claims-made coverage for the products liability portion of the CGL policy. Generally speaking, though, it’s best to go with the CGL and avoid a monoline policy because of potential coverage gaps, Franzese asserts, even if part of the coverage must be written on a claims-made basis.
One way to address complex products liability risks is to write a “specified products liability policy” that is really just a CGL policy endorsement beefed up to spell out every product the policy covers. If a business launches another product, it simply can be added to the policy. And in the event the insurer doesn’t want to cover it, the agent can go to another carrier to insure just that product, says Franzese.
“We have several monoline products markets available at Burns & Wilcox, and they are becoming increasingly competitive. We can turn agent’s submissions around quickly and provide several options as well,” says Diefenbach.
Though insurance is largely based on risk, market forces do enter into underwriting decisions. Thus there is even less need for monoline products liability now. “Because of this reasonably soft market, carriers would rather write the CGL with the products liability and collect premium than decline that piece and risk losing all of it,” explains Franzese. “So except for very risky products, products liability can usually be included in a CGL policy.”